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Coffee Prices Gain Amid Brazil's Drought Concerns

Coffee prices are rising due to dry conditions in Brazil, which is impacting crop yields. As a result, investors may want to monitor the coffee market closely for potential opportunities and risks.

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AI Rating:   6

Market Conditions and Coffee Prices
Recent market conditions have led to gains in coffee prices, particularly arabica coffee, which closed up +1.89%. The rise is attributed to dry conditions in Brazil and a strengthening Brazilian real, which discourages coffee exports.

As reported, Brazil’s arabica coffee growing area received only 71% of historical rainfall, raising concerns about future yields. The recent reduction in Brazil's coffee crop estimates, along with a projected decline in the 2025/26 crop to a three-year low of 51.81 million bags, heightens supply fears.

**Supply Dynamics**
Contrasting trends are seen with robusta coffee, where increased supply has been noted due to rising inventories. However, robusta coffee prices are bolstered by a decrease in production in Vietnam, which dropped -20% due to drought conditions. This situation may provide support for robusta prices despite competitive market dynamics.

**Global Coffee Export Trends**
Global coffee exports are anticipated to fluctuate, with a reported 12% decline y/y for Dec global coffee exports. Conversely, Brazil’s 2024 exports rose significantly, adding to the complexity of market influences.

**Future Projections**
Looking ahead, projections show a global deficit for arabica coffee in 2025/26, expected to widen compared to previous years. Reports indicate that the USDA anticipates a +4.0% increase in world coffee production but also reflects on reduced ending stocks which could further influence market prices.

In summary, dry weather conditions continue to weigh on coffee prices, while dynamics such as export fluctuations from Brazil and Vietnam indicate a need for careful monitoring by investors looking at the coffee sector.

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